Low-grade prices were at $33.85-35.15 per lb, in-warehouse, midweek, and high-grade stood at $33.85-$35.25 per lb, before falling back to parity by the end of the week.

By comparison, Metal Bulletin’s cobalt metal prices were at 475,000-515,000 yuan per tonne ($31.45-34.10 per lb), delivered in China, on Friday. Taking away 16% VAT which is not applied to exported material, an appealing theoretical arbitrage window opens up for buyers willing to accept that their material will not arrive until late next month.

In the meantime, they can offer aggressively to secure scant summer spot business in Europe, safe in the knowledge that even cheaper units are on the water.

The theoretical arbitrage window reached its widest on July 6, when cobalt prices in China, less VAT, were $8.21 per lb cheaper than the in-warehouse cobalt benchmark.

Taking Metal Bulletin’s data from August 10, that window now stands at $6.27 per lb.

But with the arbitrage window narrowing, forward buying will become is less interesting, ultimately leaving less room for aggressive offering in Europe.

“As soon as the arbitrage is less appealing, we’re not interested,” a European trader said.

Market close to ‘bottoming out’
At the same time, price moves in the international market are already less pronounced than they were at times in July. As a result, there remain consistent calls that the market is bottoming out or is close to doing so.

“The scrappies and the smaller sellers are starting to eye it,” the trader added.

Chinese sellers are reportedly less eager to offload their material at cheap prices to secure cash than they were a few weeks ago, having reduced their inventories to more acceptable levels.

“The Chinese are less eager to sell – I had one supplier tell me I would have to wait until the end of August for delivery now,” a consumer source told Metal Bulletin.

Hand in hand with the expectation that prices are close to bottoming out comes the belief that consumers are sitting on tight, and steadily depleting inventories. Over the past couple of months, 1-5 tonne sales have made up the bulk of spot business, leading to the belief that pent-up demand will see prices jump as soon as buyers return from their summer breaks.

“Summer continues and demand is sitting still; it’s not good at the moment, but stock levels are already reduced,” a second trader said.

However, there is no guarantee of that happening in the next few weeks.

“As long as there’s excess material it will continue to pressure prices, possibly into September. The consumers will wait and wait. Their inventories are low but it’s not like they need the metal to melt tomorrow,” a third trader said.

“There’s still some worry about the number of sellers and the length around. We need some serious business to be booked, then you’ll see the direction,” the third trader added.

What market participants are in agreement on is that as much as prices might have been due a correction from the $40+ levels hit in March this year, they remain underpinned by strong outright demand and limited supply, making a rebound in prices highly likely in the coming months.

As such, physical sellers were not spooked by big falls in futures prices last week.

As of Friday, the LME cobalt price was down 35% from the high of $95,500 set on March 22. At $33.50 per lb, the benchmark low of the Metal Bulletin low-grade cobalt price is down 23.3% from its own high of $43.70 per lb in late April.

Strong fundamentals still make a rebound in physical prices highly likely in the coming months

“At this rate prices could be overrun on the way down just as they overshot on the way up,” a producer said.